Artwell Dlamini
7 January 2009
Johannesburg — MORE car dealers face the likelihood of being shut down this year as the economic turbulence persists despite an interest rate cut last month , falling fuel prices and cost-cutting efforts.
McCarthy chairman Brand Pretorius said yesterday he expected some franchise dealerships to close their doors in the first half of the year as consumers were reluctant to "incur fresh debt" and companies delayed replacing their fleets.
Retail Motor Association CE Jeff Osborne said although more closures were likely, the volume of dealership closures seen last year would not be repeated this year. "The worst is over," Osborne said.
Pretorius said about 130 franchise car dealers were closed down last year due to plummeting local new vehicle sales.
He expected sales to decline further this year.
Pretorius said household debt was still high, banks were cautious about extending credit to consumers because of high levels of bad debt , and easing interest rates took about 18 months to take effect.
He said the affordability of cars was being undermined by "aggressive" increases in new car prices since September.
Car manufacturers have hiked prices in response to the decline in the value of the rand, which has increased input costs.
Pretorius also said new vehicle fleet sales were likely to decline as companies in sectors such as manufacturing, mining and retail came under significant pressure.
"The fleet sales picture doesn't look rosy," he said, citing falling corporate earnings and low business confidence as the primary reasons that companies were deferring fleet purchases.
Pretorius said the franchised dealers that looked vulnerable had high fixed costs, while others relied on private customers or consumers rather than corporate clients and therefore had no balanced customer profile.
Certain dealers stocked brands that had a small vehicle population compared to the number of cars on the roads, he said.
This limited room for earning income from parts and services, two of the business units that have helped dealers withstand the economic crisis.
He said franchise dealers were in survival mode.
They kept on rationalising operations by closing unprofitable outlets, cutting costs across the board and reducing asset levels to the amount of capital they employed in business.
Pretorius said the used-car market provided a ray of light for some dealers.
"Sales have picked up nicely," he said, and there was a "pronounced swing" from new cars to used ones, which offered "compelling value".
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